6 steps to retirement

Step 2: Watch your timing

When it comes to retirement planning, understand your options, and know when to take action.

The timing of taking Social Security is very important. Get an estimate of your Social Security benefits. Full retirement age ranges from 65 to 67, depending on your year of birth. Most people are eligible to begin drawing benefits as early as age 62, but the monthly benefit will be reduced by about 30 percent if you don't wait until full retirement age. If you wait until you're 70, you can collect a lot more.

"Understanding Social Security takes time or consultation with someone knowledgeable in the area, but could make a difference of tens of thousands of dollars over a lifetime," says Larry Luxenberg, a financial planner and partner at Lexington Avenue Capital Management in New City, N.Y.

Another timing issue involves Medicare. The age for Medicare is 65 unless you are covered by employer health care. "If you fail to enroll in Medicare at the appropriate time, you are subject to monthly penalties that stay in place for life," says Marla Mason, a CFP professional at Presidential Brokerage in Greenwood Village, Colo.

Also, you must start taking distributions from your tax-deferred accounts, such as an individual retirement account, once you're 70 1/2. If you miss that deadline, you get hit with a stiff 50 percent penalty.

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